Compound Interest
Interest earned on both principal and previously accumulated interest. Compounding underlies all time-value-of-money mathematics in appraisal — discounting, yield rates, and mortgage amortization.
Related Terms
Discount Rate (Yield Rate)
The rate of return required by an investor to attract investment in a particular property, used in DCF analysis to convert future cash flows into present value.
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..
Mortgage
A loan secured by real property, giving the lender a lien and the right to foreclose on default.
More in Income Approach
View allCapitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Gross Rent Multiplier (GRM)
GRMThe ratio of a property's sale price to its gross monthly (or annual) rental income.
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Effective Gross Income (EGI)
EGIPotential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees).